Morningstar DBRS Downgrades Credit Ratings on Eight Classes of GS Mortgage Securities Trust 2017-GS5, Changes Trends on Six Classes to Negative From Stable

DBRS Limited (Morningstar DBRS) downgraded the credit ratings on eight classes of Commercial Mortgage Pass-Through Certificates, Series 2017-GS5 issued by GS Mortgage Securities Trust 2017-GS5 as follows:

-- Class X-B to A (high) (sf) from AA (sf)
-- Class B to A (sf) from AA (low) (sf)
-- Class X-C to BBB (low) (sf) from A (sf)
-- Class C to BB (high) (sf) from A (low) (sf)
-- Class X-D to CCC (sf) from BBB (sf)
-- Class D to CCC (sf) from BBB (low) (sf)
-- Class E to C (sf) from BB (low) (sf)
-- Class F to C (sf) from B (low) (sf)

In addition, Morningstar DBRS confirmed the following credit ratings:

-- Class A-3 at AAA (sf)
-- Class A-4 at AAA (sf)
-- Class A-AB at AAA (sf)
-- Class A-S at AAA (sf)
-- Class X-A at AAA (sf)

Morningstar DBRS changed the trends on Classes A-S, B, C, X-A. X-B, and X-C to Negative from Stable. Classes D, E, F, and X-D no longer carry a trend given the CCC (sf) or lower credit rating. The trends on all other classes are Stable.

The credit rating downgrades are reflective of Morningstar DBRS' increased loss projections, driven by four of the five loans in special servicing: Lafayette Centre (Prospectus ID#2; 8.6% of the pool), Writer Square (Prospectus ID#7; 6.3% of the pool), 20 West 37th Street (Prospectus ID#16; 2.9% of the pool), and 604 Mission Street (Prospectus ID#19; 1.7% of the pool). Two loans have transferred to special servicing since last review in August 2024, including Lafayette Centre. Morningstar DBRS' analysis includes liquidation scenarios for the four loans that result in a total implied loss in excess of $75.0 million. The projected loss would fully erode Classes E, F, and G, and partially erode Class D, while significantly reducing the credit support provided to Classes B and C, supporting the credit rating downgrades.

Morningstar DBRS believes that current performance trends for the specially serviced loans indicates the potential for further value decline and outside of the loans in special servicing, Morningstar DBRS notes the high concentration of loans backed by office properties, with a number of those loans exhibiting performance declines from issuance approaching maturity in 2027, most notably GSK R&D Centre (Prospectus ID#4; 5.3% of the pool) and 700 Broadway (Prospectus ID#9; 5.2% of the pool). For this review, Morningstar DBRS analyzed three loans exhibiting increased credit risks with elevated probability of default (POD) penalties and/or stressed loan-to-value ratios (LTVs). As a result, the pool's overall adjusted expected loss (EL) has increased since the previous credit rating action. These are the primary considerations for the Negative trends.

As of the February 2025 remittance, 28 of the original 32 loans remain in the pool, representing a collateral reduction of 10.1% since issuance. Four loans, representing 10.5% of the pool, are secured by collateral that has been defeased. There are five loans in special servicing (24.8% of the pool), all of which are secured by office properties, and seven loans (24.8% of the pool) on the servicer's watchlist, which are predominantly monitored for servicing trigger events, among others. By property type, the pool is most concentrated by office properties, representing 40.2% of the pool, followed by retail and mixed-used properties, representing 19.5% and 16.7% of the pool, respectively.

The largest loan in special servicing, Lafayette Centre, is secured by three class A office properties, totaling 794,025 square feet (sf), in the Central Business District of Washington, D.C. The subject loan has two pari passu companion notes held in two other transactions, none of which are rated by Morningstar DBRS. The loan transferred to special servicing in May 2024 for imminent monetary default as the property's largest tenant, Commodity Future Trading Commission (CFTC; 36.4% of the net rentable area (NRA)), has confirmed its intent to vacate the property at its lease expiration in September 2025. According to the February 2025 remittance, negotiations regarding the workout strategy remains ongoing, with the borrower and lender discussing a potential receivership and leasing opportunities. Per the June 2024 reporting, the property was 73.9% occupied, a decline from 84.0% as of YE2022 following the departure of AT&T (formerly 10.0% of the NRA). Although the loan is current as of February 2025, it was previously delinquent from June to August 2024, and with the upcoming departure of CFTC, Morningstar DBRS expects a high likelihood of payment default in the near term as the debt service coverage ratio will likely fall below breakeven once occupancy potentially drops to 37.5%. Given the property's older vintage and soft submarket, Morningstar DBRS believes the borrower will face challenges in backfilling the vacant space. For this review, Morningstar DBRS analyzed this loan with a liquidation scenario based on a conservative haircut to the issuance appraisal value, which resulted in an implied loss in excess of $32.0 million, or a loss severity approaching 40.0%.

The 700 Broadway loan is secured by an office property in Denver. The loan was previously monitored on the servicer's watchlist because of the largest tenant's, Elevance Health (86.0% of the NRA), lease expiration in December 2024; however, transferred to special servicing in November 2024 for imminent monetary default. The servicer has confirmed the tenant's intent to downsize its space by 258,611 sf, while extending its lease for the remainder of its space of 106,565 sf (25.1% NRA) to June 2030. Given the downsizing, the property's occupancy is expected to drop from 88.0%, as of June 2024, to 26.6%. The borrower will have access to $8.5 million in reserves available, as of February 2025 reporting, including $4.6 million for tenant rollovers, $2.1 million to tenant improvement and leasing costs, and $1.5 million to building expenses, among others. While discussions between the special servicer and borrower are ongoing, the master servicer had stated in Q4 2024 that there were prospective tenants interested in leasing at the property. Additionally, the borrower was also planning to renovate the lower vacant floors for alternative uses, as noted the October 2024 servicer commentary; however, there have been no updates provided to date in regard to the execution. Given the loan's recent transfer to special, the collateral's location in a soft submarket, and the imminent performance decline, Morningstar DBRS applied an LTV of 100%, to account for Elevance Health's downsizing, and POD adjustments for this loan, which resulted in an EL that was over three times the pool's average.

The GSK R&D Centre loan is pari passu with the note held in the GSMS 2017-GS6 transaction, which is not rated by Morningstar DBRS. The loan is secured by a single tenant office/research and development complex in Rockville, Maryland, and was placed on the servicer's watchlist in January 2025 because the property is dark, following the departure of Human Genome Sciences, Inc. (HGS) prior to its lease expiration in May 2026. As a result of the departure, a cash trap has been activated, with excess funds being kept in a lockbox reserve. As of February 2025, approximately $7.1 million of lockbox reserves has been disbursed, with only $600 remaining. Additionally, approximately $5.8 million of reserves remain available in the lease sweep account. As HGS' lease did not feature a termination option, Morningstar DBRS expects the tenant to continue to honor its rent obligations through its expiry. However, as the loan is set to mature in January 2027, beyond HGS' lease expiry, Morningstar DBRS conducted an updated dark value analysis based on current market conditions. Morningstar DBRS' concluded dark value of $114.0 million, which resulted in an implied LTV of 121.1%. Additionally, Morningstar DBRS also increased the loan's POD adjustment to account for the impending performance decline once HGS' lease expires, resulting in an EL that was nearly 1.5 times above the pool's average.

Morningstar DBRS' credit ratings on the applicable classes address the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. Where applicable, a description of these financial obligations can be found in the transactions' respective press releases at issuance.

Morningstar DBRS' long-term credit ratings provide opinions on risk of default. Morningstar DBRS considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The Morningstar DBRS short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS 
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.
 
A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (August 13, 2024) at https://dbrs.morningstar.com/research/437781.

Classes X-A, X-B, X-C, and X-D are interest-only (IO) certificates that reference a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All credit ratings are subject to surveillance, which could result in credit ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by Morningstar DBRS.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (December 13, 2024), https://dbrs.morningstar.com/research/444617.

Other methodologies referenced in this transaction are listed at the end of this press release.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit ratings were initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for these credit rating actions.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with these credit rating actions.

These are solicited credit ratings.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process. Please note a sensitivity analysis is not performed for CMBS bonds rated CCC or lower. The Morningstar DBRS Long-Term Obligation Rating Scale definition indicates that credit ratings of CCC or lower are assigned when the bond is highly likely to default or default is imminent, thereby prevailing over a sensitivity analysis.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS' outlooks and credit ratings are monitored.

DBRS Limited
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Toronto, ON M5H 3M7 Canada
Tel. +1 416 593-5577

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

-- North American CMBS Multi-Borrower Rating Methodology/North American CMBS Insight Model v 1.2.0.0 (December 13, 2024), https://dbrs.morningstar.com/research/444616
-- Morningstar DBRS North American Commercial Real Estate Property Analysis Criteria (September 19, 2024), https://dbrs.morningstar.com/research/439702
-- North American Commercial Mortgage Servicer Rankings (August 23, 2024), https://dbrs.morningstar.com/research/438283
-- Legal Criteria for U.S. Structured Finance (December 3, 2024), https://dbrs.morningstar.com/research/444064

A description of how Morningstar DBRS analyzes structured finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/417279.

For more information on this credit or on this industry, visit https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.